This blog is about macro-economics, financial markets and the world that has been pulled over your eyes to blind you from the truth.

— Neo: What truth?
— Morpheus: That you are a slave, Neo.

2010-12-23

Bloomberg Sues ECB to Force Disclosure of Greece Swaps

After having sued the Fed a couple of years ago in order to obtain the details about the bailout money and the trillions of dollars the Fed printed, Bloomberg is now suing the ECB to force them to disclose the swaps arrangements relative to Greece.

Bloomberg is one of the rare freedom fighters, along with WikiLeaks. What is interesting with this case though, is that it shows how a for-profit corporation in a capitalistic system, end up actually fighting against the government (and the government entities, such as the Fed and the ECB) for business reasons (in order to sell the information regarding the Greece Swaps) ; and by doing so, Bloomberg becomes a freedom fighter. So in pure capitalistic system, corporations, driven by competition, will fight for their freedom, the freedom of information and the freedom of their (potential) customers.

For the sake of clarification, remember that the ECB is the central planner for the interest rates across all the Eurozone, and having a non-free, monopolistic fiat currency. It is born not from a capitalist but socialist system.

Dec. 22 (Bloomberg) -- Bloomberg News filed a lawsuit against the European Central Bank, seeking to make it disclose documents showing how Greece used derivatives to hide its fiscal deficit and helped trigger the region’s sovereign debt crisis.

The lawsuit asks the European Union’s General Court in Luxembourg to overturn a decision by the ECB not to disclose two internal documents drafted for the central bank’s six-member executive board in Frankfurt this year. The notes show how Greece used swaps to hide its borrowings, according to a March 3 cover page attached to the papers obtained by Bloomberg News.

ECB President Jean-Claude Trichet withheld the documents after the European Union and International Monetary Fund led a 110 billion-euro bailout ($144 billion) for Greece. The dossier should be disclosed to stop governments from using the derivatives in that way again and show how EU authorities acted on information they had on the swaps, according to the suit, filed by Bloomberg Finance LP, the parent of Bloomberg News.

The EU is dependent “on member states taking an open and transparent approach in relation to their levels of debt,” Bloomberg said in its suit. “If Greece has failed to take such an approach in the past, there is a compelling public interest in relevant information being disclosed.”

An ECB spokeswoman declined to comment on the lawsuit.

The ECB case follows a 2008 lawsuit by Bloomberg LP seeking disclosure of the U.S. Federal Reserve’s records on emergency lending under the Freedom of Information Act. A group of banks is appealing to the U.S. Supreme Court over lower-court decisions ordering the Fed to identify loan recipients.

The Greek government didn’t originally disclose the swaps, designed to help it comply with the deficit and debt rules it agreed to meet when it joined the euro in 2001.

Eurostat, the EU’s statistic’s agency, said last month the swaps added 5.3 billion euros to the country’s debt, without giving details. Repeated revisions of Greece’s national figures, beginning last year, spurred a surge in borrowing costs that pushed the country to the brink of default and triggered a region-wide debt crisis.

“The information contained in the two documents would undermine the public confidence as regards the effective conduct of economic policy,” Trichet wrote in an Oct. 21 letter, turning down Bloomberg’s request for the documents. Disclosure “bears, in the current very vulnerable market environment, the substantial and acute risk of adding to volatility and instability.”

ECB officials first spotted “a swap operation in unusual terms,” in April 2009, seven months before the Greek crisis erupted, according to the March 3 cover note.

“It is wholly unclear what (if anything) the ECB did at that time to investigate further,” Bloomberg’s suit says.

Greece entered into a “large” number of private, off- market swaps from 2001 through 2007, Luxembourg-based Eurostat said in a report on Nov. 15. The agreements, which led to higher debt, were analyzed “in detail,” Eurostat said. A follow-up report on Greek data including swaps is due in weeks, a spokesman said at the time.

“Disclosure would help prevent these situations repeating themselves,” said Michael Spence, winner of the Nobel Prize for Economics in 2001 for his research on asymmetric information in markets. “It’s a tough call. Not everything can be disclosed, but markets need to know.”